Strong recovery for Sydney CBD office in 2016

Strong recovery for Sydney CBD office in 2016Sydney’s CBD office market may be well positioned for a strong upswing over the next two years off the back of a stronger NSW economy, with a new report from BIS Shrapnel presaging strong recovery in 2016.According to BIS Shrapnel’s Sydney Commercial Property 2014 to 2024 Update report, growth of the NSW economy, which started to pick up in the second half of 2013, has continued this year, driven by the recovery in dwelling construction.The report says Sydney has passed the worst of its weakness in office employment growth, and BIS Shrapnel foresees that, throughout 2015, NSW’s economic recovery will have a positive flow-on effect to Sydney’s CBD office market.In particular, it notes higher public infrastructure investment, and the role of NSW services industries as key office occupiers, which will benefit from a lower Australian dollar. Meanwhile, demand for Sydney office space will strengthen as NSW’s economic growth flows through and businesses start to invest again.”Over the second half of the decade we expect net absorption in the Sydney CBD will be much stronger than we’ve seen this half,” said Lee Walker, senior project manager and author of the report. “The problem is the recovery in demand will be met by rising supply.”BIS Shrapnel argues that the Sydney CBD office market “will remain in a holding pattern” until there is strengthening demand off the back of rising investment in business
services, and following absorption of new office completions, three of which are at Barangaroo.Sydney is slated to see the completion of six new office towers in 2015 and 2016, which will add about 3,000 sqm to stock. Moreover, BIS Shrapnel says “withdrawal of secondary buildings for residential/hotel conversion will help rebalance the market over the next three years”, but notes that its impact should not be overstated.”It is widely reported that more than 30 existing office buildings have proposals for conversion to other uses, involving up to 2,000 sqm of space, but not all will go ahead because of existing leases across multiple tenancies. We believe a more realistic number is closer to 130,000 sqm,” said Walker.BIS Shrapnel forecasts a vacancy rate that is in line with the current level of 8-9 per cent until the end of 2016, after which “a lull in office completions should see the vacancy rate fall significantly, setting the scene for much tighter market conditions”.